All posts tagged Italian banks

Italian banks are making the most of the ECB-induced feel-good factor, capitalizing on the recent credit rally and the search for higher returns among yield-hungry investors.

That’s evident from the latest crop of Italian bank-bond sales, with the order book for Mediobanca’s €500 million euro ($651.7 million) deal Friday amounting to €2.8 billion, and Intesa Sanpaolo’s €1.25 billion bond, garnering over €4 billion in orders, with the deal scheduled to price today.

But why the strong demand for Italian bank debt given concerns that Italy could well be next in line for an EU bailout, if and when Spain finally requests external financial support?

The answer has something to do with the ECB’s policy decisions last month and good old credit fundamentals.

The deadline for European banks to announce how they plan to comply with stronger capital ratios required by the European Banking Authority is Friday, but Banca Nonte dei Paschi di Siena SpA and Banco Popolare SC, Italy’s No. 3 and 4 lenders by domestic assets, both say they will not sell new equity to comply with shortfalls.

Maurizio Faroni, chief financial officer of Banco Popolare, which the EBA says has a €2.7 billion hole to plug, confirmed Thursday that they have no intention to do a rights issue. Monte dei Paschi executives have been saying the same for a while.

Just what happens in the next 24 hours is not clear. Both banks may have hybrid bonds they can convert to equity, they also may be able to announce asset sales to deleverage their balance sheets, and likely plan to revise the way their internal risk-weighting classifications work.

Both banks have a natural reluctance to sell new shares, especially after Unicredit announced its plan to do so and watched its shares fall more than 10% on four consecutive days. The foundation that currently owns more than half of Monte dei Paschi is under financial stress already, while mutual banks like Banco Popolare have rules over voting rights that make them structurally averse to big share sales.